In response to renewed US sanctions, India has transferred approximately $120 million to Iran to fully settle its financial obligations for developing the Chabahar port, a key trade gateway to landlocked Afghanistan, according to The Economic Times on Friday.

A government source confirmed that India now has “no liability” regarding the project, allowing Iran to use the funds at its discretion.

India had received a six-month exemption from US sanctions on the port in October 2025. New Delhi and Tehran had signed a contract in 2024 to develop and equip the long-delayed Chabahar project, granting India ten years of operational access.

However, following the reimposition of US sanctions, the state-owned India Ports Global Ltd (IPGL) effectively withdrew from the project. Government directors resigned en masse, and the IPGL website was taken offline to protect those involved from potential sanctions. “India had no choice but to exit the Chabahar port,” the source added.

The decision followed a January 12, 2026, warning from US President Donald Trump that any country engaging with Iran would face a 25% tariff on all trade with the United States. Officials said the move was the result of a stark cost-benefit calculation under intense US pressure. Combined with existing tariffs, Indian exports to the US could have faced total duties of up to 75%, making the relatively small trade with Iran—valued at around $1.68 billion—less strategically important.

The US had already crippled the project by reimposing sanctions on the port, effective September 29, 2025. India’s transfer of funds and operational wind-down were intended to secure a temporary six-month sanctions exemption from the US Office of Foreign Assets Control (OFAC), avoiding secondary sanctions on Indian entities.

While Iran accounts for only 0.15% of India’s overall trade, specific sectors such as basmati rice exports, where Iran is a major market, could face immediate disruptions due to payment delays and shipment uncertainties.

Strategically, the project’s returns were increasingly uncertain amid Afghanistan’s Taliban-led instability and Iran’s domestic unrest. The withdrawal highlights a pragmatic, if reluctant, prioritization of economic security with the US over long-term regional connectivity. India loses a critical corridor to Afghanistan and Central Asia that allowed it to bypass Pakistan, undermining years of investment aimed at expanding its regional influence.

Analysts note that the episode exposes limits in India’s “multi-alignment” foreign policy. When faced with a direct conflict between US demands and its partnership with Iran, New Delhi prioritized Washington, potentially impacting its credibility as an independent strategic partner.

Some experts warn that India’s exit leaves Chabahar vulnerable to Chinese involvement, as Beijing has both the resources and willingness to defy US sanctions, potentially increasing its influence in the Indian Ocean region.

Overall, India’s withdrawal from Chabahar underscores a difficult reality: when forced to choose between protecting vital economic ties with the United States and preserving a strategically important but economically secondary project with Iran, New Delhi will prioritize the former. While the move secures short-term economic relief, it comes at the cost of a long-term strategic vision, reflecting the challenges middle powers face in a polarised global order.